(BITO) Back in the office
To what extent workers will return to offices during 2021 depends very much on the availability of a vaccine. Our view on the proposed death of the office is covered extensively in our ten trends for 2021 and therefore we won’t dwell on that here. Put simply, we believe that, by and large, workers will go back to the office once it’s safe to do so but that a greater share of homeworking or somewhere else working will form a larger part of workers’ lives. Our UK Cities Recovery Index displayed this very clearly in September when the UK government changed its advice on working from home – our index remained stable, with those that had already returned in some capacity keen to continue. Despite this, a number of occupiers are reviewing how they use their office space both in the short term, against a dire economic backdrop, and in the long term.
The long game
In the short term, we are seeing occupier requirements re-evaluated as businesses look to mitigate cost. We are in a recession and this is par for the course. This has, and will, see occupiers reduce their requirements. However, those occupiers who are fortunate and able to take a long-term view on the growth of their business, are already looking at ‘futureproofing’ their requirements taking into consideration more room for collaboration and less dense working arrangements, focused on the health and wellbeing of their employees.
This will result in an emergence of a relatively thin two-tier market whereby we continue to see some activity at the larger end of the market (particularly through pre-letting) where the availability of space in all of the UK’s key markets is still generally at a premium. We have seen evidence of this during the middle portion of 2020, with Bailie Gifford, BT, MCHLG, BP, Baker McKenzie and others all committing to significant deals across London, the South East and our Big Nine cities. Despite this, take-up across these markets during the first three quarters of 2020 represented only half of what we saw during the corresponding period in 2019.
We expect demand to continue to come from the Government Property Agency’s Hub programme which will continue to bolster regional take-up, whilst in London a number of legal occupiers continue to be relatively active. We are seeing continued demand for Science Park space from life sciences occupiers and for out-of-town office space, with a number of occupiers citing desire for a hub-and-spoke model, increased parking capacity as well as affordability.
The thin layer of demand across the majority of our markets means that by and large we will see downward pressure on rents, although supply issues are more likely to come from release of existing space than the development pipeline – which is tight across most markets.
For occupiers whose growth plans have stalled, or have seen a cut in their workforce, we expect to see a further increase in the supply of ‘grey space’ coming on the market. This is an understandable reaction to companies’ inability to use their space during the pandemic but we need to wait and see how much of this space is reoccupied once the recovery sets in.
Flex in the city
The rationalisation of the flexible office sector will continue as some operations, typically individual lease specific SPVs, are put into administration. However, we believe there is very much life in the sector. Whilst we continue to believe in our key regional markets and London, we expect to see the first examples of the flex ‘work near home’ concept start coming through during 2021 with a number of operators actively in the market for space in commuter and suburban towns, particularly in the South East. This could be the tip of the iceberg when it comes to experimentation around workspace and work/life balance.
Flex in the city
The rationalisation of the flexible office sector will continue as some operations, typically individual lease specific SPVs, are put into administration. However, we believe there is very much life in the sector. Whilst we continue to believe in our key regional markets and London, we expect to see the first examples of the flex ‘work near home’ concept start coming through during 2021. There are a number of operators actively in the market for space in commuter and suburban towns, particularly in the South East. This could be the tip of the iceberg when it comes to experimentation around workspace and work/life balance.
